IEX Applies for Exchange Status

Investors Exchange LLC recently filed an application with the SEC to become an official exchange. Better known as IEX , the group had been operating as an alternative trading system (ATS) and gained national prominence after being featured in the book Flash Boys. IEX describes itself as “a fair, simple and transparent market center dedicated to investor protection.” The application includes a description of IEX’s “Point of Presence,” a key feature which imposes a 350 microsecond latency speed bump.

In a letter to IEX subscribers, CEO Brad Katsuyama noted that the venue is “one of the fastest growing markets in the United States trading over 7,000 unique symbols each month and hitting recent record highs of 1.86% market share and 414 million shares of subscriber volume in a single day.” He argued that while “technology and increased industry sophistication should have significantly lowered the costs that exchanges impose on our industry,” that has not been the case. According to Katsuyama, “IEX believes data and technology should be provided at a reasonable cost or no cost at all, with the goal of institutionalizing fairness for the greatest number of market participants.” Indeed, IEX’s published fee list indicates that it does not charge connectivity or market data fees, and that that subscribing to the current ATS and becoming a member of the forthcoming exchange are free.

While the application also includes a set of listing standards, Katsuyama noted that IEX does not plan to be a “listings exchange” at launch but that the group wants to keep the option open. Katsuyama suggested that IEX had been “receiving significant inbound inquiries from public companies regarding our intention around listings.” The application also lists 80 current subscribers to the IEX ATS that the group believes will become members of the exchange and notes more than 80 other current subscribers that it refrained from publishing due to confidentiality agreements.

The next step for IEX’s application is publication in the Federal Register, at which point the public will have 45 days for comment. At the close of that period, the Commission will have an additional 45 days to review the application. Katsuyama acknowledged that the timeline would put a potential launch “squarely in the midst of the holiday season” when many industry participants implement a “code freeze” on systems. As a result, IEX plans to launch the exchange in “mid to late Q1 2016.”